Social Security Statements Not Changing Behaviors

To
aid workers in planning for retirement, the Social Security Administration
(SSA) started an initiative in 1995 mailing out personalized annual statements that
provided estimates of an individual’s monthly benefit at various claiming
ages.

A
brief published by the Center for Retirement Research (CRR) at Boston College summarizes
studies that have investigated whether the statement makes workers better
informed about their benefits and whether it changed their behavior. According to
the brief, SSA funded a series of surveys between 1998 and 2004 that supported
the notion that the statement increased knowledge and improved retirement
planning.

Two-thirds
of respondents in the final 2004 survey recalled receiving the statement, and
those who did thought it provided valuable information. In addition, these
respondents were more knowledgeable about their benefits than those who did not
recall receiving a statement. A later survey found that, of those age 55 and older
who recalled receiving the statement, more than 40% also said they used the
information in planning their retirement.

The
CRR brief says studies by Giovanni Mastrobuoni and Andrew Biggs identified a far
more nuanced relationship between the statement and what workers know. These
studies assessed the effect of the mailings on workers approaching retirement
using the Health and Retirement Study (HRS), a nationally representative
biennial survey of older Americans. Mastrobuoni’s
analysis found that the mailings had little effect on the benefit knowledge of
workers who contact SSA directly for benefits information, but the statement dramatically
improved the knowledge of those who did not contact SSA.

Before
receiving the mailings, not contacting SSA reduced the likelihood that a worker
could estimate his Social Security benefit at his expected retirement age,
controlling for other factors that affect this result, by 26 percentage points.
After mailings, the effect of not contacting SSA was cut by more than one-third,
from 26 to 16 percentage points. Mastrobuoni also found that the statement
increased the accuracy of benefit estimates—primarily but not exclusively among
workers who did not contact SSA for benefits information.

NEXT: Does the SSA statement change behavior?

The
brief notes that after 1995, when workers began receiving annual statements,
the share of 62-year-old workers claiming benefits at 62 declined sharply. The 2004
SSA survey reported that one-third of the respondents who recalled receiving a statement
said that it led them to “reconsider” their retirement date. “This finding
suggests that the Statement and the information it contained about the effect of
claiming later on monthly benefits could have contributed to the striking
change in early claiming behavior,” Steven A. Sass writes in the brief.

However,
Mastrobuoni’s study found no change in behavior associated with receipt of the statement.
It found no uptick in workers changing their expected claiming age. Controlling
for several factors, Mastrobuoni’s study found that the statement had no effect
on the age workers claimed.

The
CRR brief notes that neither the Biggs nor Mastrobuoni studies assessed whether
the statement improved worker knowledge about the increase in monthly benefits should
they delay claiming. But a survey conducted by Jeffrey Liebman and Erzo Luttmer
in 2008 found the respondents, who had been receiving annual statements for
nearly a decade, were reasonably well-informed about the incentive. Eighty-five
percent of the respondents knew that claiming later increases monthly benefits,
and they provided reasonably accurate estimates about how much monthly benefits
would rise.

“The key takeaway from these studies is that
workers receiving the Statement generally know that claiming later would
increase their monthly benefit; but no evidence exists that the Statement changes
when they claim,” Sass writes.

NEXT: What’s missing?

According
to the CRR brief, a 2010 survey by Matthew Greenwald, Arie Kapteyn, Olivia S. Mitchell,
and Lisa Schneider found that even though workers know they could increase
their monthly benefit by working longer, essentially none of the respondents
said they had pushed back their retirement age.

Sass
says the major impediment to the Social Security Statement’s ability to help
workers prepare for retirement could be what Greenwald et al. call “a lack of
knowledge about the key factors necessary for comprehensive retirement planning.”
These factors include knowing: 1) how much income they need to “maintain a good
standard of living;” 2) how much they will get from Social Security; 3) how
much they need from savings and other sources to complement what they get from
Social Security; and 4) what they could do to get what they need, such as
working longer.

A comprehensive retirement planning framework
would show workers that pushing back their retirement age does more than raise
their monthly Social Security benefit; it also reduces the savings they need at
retirement, as the higher monthly benefit reduces the income they need from
savings, and it shortens the length of time their savings need to provide that income,
the brief notes. Retiring later also increases the savings that workers will
have at retirement, as it gives them more time to save and gives their savings
more time to accumulate investment income.

“The
lack of such a larger retirement planning framework could be why the Statement
mailings seem not to have prompted changes in behavior,” Sass concludes.

The brief, “Does the
Social Security Statement Add Value?” may be downloaded from here.